Project Choice and Social Image Concerns

Abstract

Employees' desire to impress their employer may lead to suboptimal choices, such as performing tasks that are out of their depth. In this paper, we formalise this intuition in a principal-agent setting and we experimentally analyse its practical relevance. Through a theoretical model, we show that an agent's desire to appear competent to their employer (social image concerns), can result in inefficient project selection. We test this prediction using a laboratory experiment and find that social image concerns increase the likelihood of suboptimal project choices when agents are male and the principal-agent interaction is not anonymous. Our findings have implications for organisational design.